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Weaving scale into handicrafts

How do you turn thousands of artisans into suppliers to a commercial, for-profit retail chain? Make them shareholders in community-owned companies that can supply in bulk.

Print Edition: May 30, 2010

Commercialise handmade products and market them globally, while maintaining high quality? Fabindia has mastered these conflicts, creating a retail platform of 111 stores, including two abroad, while reporting a turnover of Rs 350 crore for 2009-10. Fabindia's secret: A pioneering, community-led supply chain that has helped it create and dominate its niche—textiles in the form of readymade garments, bed linen, curtains, and even non-textile products in personal care, furniture, lighting and organic foods—while benefiting the artisans who work for it.

Handicrafts are by definition things made by hand with rudimentary tools and have been exceptions to the laws of mass production. But, Fabindia has introduced the element of scale and quality to its process.

Key Challenge
To get global scale out of products that by definition are not made by machines.

Innovation
Got clusters of artisans to become shareholders in companies that in turn supply Fabindia.

About five years ago, Fabindia realised that it needed to take some tough calls on how to scale up profitably and while retaining its brand equity in handicrafts. "We realised that we had a very well-recognised brand, but we needed to establish a supply chain that could sustain large supplies. For this, we needed to involve artisans as they were very integral to our DNA," says Sunil Chainani, Working Director, Fabindia. The company today deals with nearly 40,000 artisan families and has come a long way from its beginnings in 1960 as an exporter of Indian textiles.

The domestic business came much later: It set up its first store in 1976, in Delhi's Greater Kailash area, and the second came only in 1993, again in Delhi (Vasant Kunj), followed three years later by one in Bangalore, its first outside Delhi. As its expansion gathered speed, by 2007, it had 54 retail stores across the country, including one each in Dubai and Rome, backed by 7,000 artisans.

Today, almost 95 per cent of its turnover comes from domestic sales. The product base has diversified from textiles to include nontextile items and even organic foods. This required the presence of a robust supply chain that could deliver goods at affordable prices, with very low variance in quality and just-in-time supplies—making its supply chain innovation an imperative.

Fabindia was convinced that making the artisans a part of its wealth creation process would help its own profitable growth. So, it has worked out a rather simple— yet a very modern and transparent—system of organisation that not only seeks to make disparate artisans more closely-knit, but also more organised in their functioning.

It mapped all entire artisan/supplier groups and created 17 community-owned companies (COCs), which were financed through the creation of shares and capital investment by Artisans Microfinance (a fully-owned subsidiary established in 2007).

In other words, the artisans working on any supply related to Fabindia become shareholders of the company that exists in their region—which is in addition to the money they get by selling their produce. "These artisans can trade the shares between various stakeholders, and all the companies except one are profitable entities and they all pay dividends," says Chainani.

Artisans hold a substantial part of the shareholding of each COC: At least 26 per cent in all cases (this gives them a say in all key decisions). For the artisans, their own supplies to Fabindia improved their companies' bottom line. This provided an investment opportunity: They could realise capital gains by share trading at pre-decided intervals.

These suppliers are not contractually limited to supplying only Fabindia—they can realise additional gains if they choose to sell to other exporters. Overall, Fabindia aimed at building reliable partnerships with artisan groups. By providing management training, skills training, and working capital to its network members, Fabindia now stands to reduce the true cost of procurement over time.

Fabindia provides another kind of ‘service' to its network of suppliers: It assists in translating market signals (that is, the consumption trends) to the artisans so that they make products that Fabindia and its customers really want to buy. A product selection committee regularly checks the pulse of the market through data and trend analysis, based on which it advises the COCs about the latest fashion trends and helps them get inputs from professional designers.

The COCs are required to provide Fabindia an assured supply of high-quality goods at competitive prices. But instead of implementing centralised quality control mechanisms, Fabindia has handed over the quality process to the COCs after defining stringent procedures. Now, COCs ship directly to stores and the stores decide whether to accept or reject shipments.

According to Fabindia, it aspires to create a retail experience which entails an "element of surprise". Every time customers visit a store, Fabindia hopes they will discover a new design. In the past several years, while pursuing this ‘delight' factor, the Fabindia portfolio has expanded to more than 150,000 SKUs (stock-keeping units) each signifying a separate product, design, colour and size. This posed a serious challenge for inventory management.

Having built the capability for decentralised quality assurance, Fabindia created an automated process that allowed the stores to directly place orders with the COCs, based on a pre-programmed algorithm, completely decentralising the inventory management process as well. The result: Faster signalling of real demand through the supply chain, so that Fabindia never has to put even 10 per cent of its inventory on discount sale.

Though Fabindia is guided by its ethical stance towards its stakeholders, it relentlessly focusses on profits— a key reason for its success and retail growth— even as it pioneers the mass retailing of handcrafted products. In fact, 11 of the 17 COCs have begun generating dividends within three years of incorporation. So far, the Fabindia model contributes to wealth creation and employment for close to 40,000 families.

MONITOR'S TEN TYPES OF INNOVATIONTM FRAMEWORK: FABINDIA

1. Networking: Pioneering the concept of community-owned companies and providing financial services, equity stake and capacity building to such companies.

2. Enabling Process: Inventory management enabled by decentralised decision-making model and aligning incentives across all network players.

3. Core Process: Decentralised quality assurance and mechanism for transmission of market signals.

4. Brand: Use of interactive ways to educate customers— coffee mornings, kids interactions, cooking with organic foods demos, and block printing workshops with master craftsmen (all in stores)—making purchase process a participatory process.

5. Customer Experience: Standardised and consistent quality. Availability of very wide range of stock-keeping units.

Organisations that achieve breakthrough innovation usually cover at least 3-4 types of innovation included in the framework. Fabindia fulfils five.

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